Business 25 January 2019

Erik Gibbs

JPMorgan provides its global perspectives on blockchains and cryptocurrencies

JPMorgan has released a 53-page “snapshot” of the state of cryptocurrencies and blockchains. The report is a fascinating view of how the industry has progressed and where it is headed, even though the analysts seem—on a few occasions—to not completely understand the space. It is, however, still a worthwhile read to those that want to better grasp the global crypto picture. 

The report, J.P Morgan Perspectives – Blockchain and Cryptocurrencies 2019: Adoption, Performances and Challenges, was authored by 28 different analysts from the company. They point out, among other things, that blockchain adoption has progressed, but that the technology is still immature and probably won’t see widespread acceptance for a number of years. Specifically for the banking industry, they assert, “Blockchain solutions making a meaningful difference for banks are at least three to five years away, in our view, with Trade Finance likely to benefit the most.”

Five years, relatively speaking, is actually a short amount of time for any technology to receive mass adoption—and it is made even more significant when considering the massive amount of controls that need to be put in place to accept blockchain tech on a global financial scale.

The analysts also delve into the segment of crypto regulations, pointing out that the U.S. is lagging behind Australia and some European countries in introducing the requisite framework that would allow the industry to flourish. While the U.S., for whatever reason, hasn’t been as open with regards to crypto, the rest of the world appears to be actively pursuing the incorporation of blockchain, as well as payment systems that rely on digital currencies. Two notable examples are the Australia Stock Exchange (ASE) and Spain. The ASE, as well as a number of Spanish banks, have already made great strides to integrate blockchains into their operations. 

When trying to describe the mining and scaling issues associated with cryptocurrencies, however, the analysts go significantly off course. They assert, “Projects that are still using the proof of work (POW) consensus protocol are seeing an increase in mining costs as difficulty continues to rise due to use of specialized hardware.”

By “difficulty,” the JPMorgan analysts refer to the number of calculations required on the average to mine valid blocks. This number has trended upwards since the beginning of Bitcoin, along with the efficiency of mining hardware, which means for the same cost and power consumption, modern mining hardware can be used to do many more calculations. But that is also a function of more miners and hash power coming onto the Bitcoin network, and the protocol’s periodic re-adjustment of the difficulty algorithm to ensure blocks are mined on average every 10 minutes.

The technical function of mining is not getting any more difficult. If anything, the opposite is true. It’s important to remember that, in general, cryptocurrency mining had not really taken off until just a few years ago. This means that the technology to facilitate mining was new. Just as the world went from 5 ¼-inch floppy disks to 3 ½-inch floppy disks to portable hard drives to 1TB USB drives and SD cards, the technology involved in crypto mining is improving, as well.

Daniel Connolly and Steve Shadders of nChain, the global leading blockchain research & development firm, recently showed how mining could be made simpler for less money. A new Bitcoin SV Scaling Test Network has also shown that sustained 64MB – and getting to sustained 128MB – blocks are already possible on the Bitcoin SV blockchain, using existing hardware (and that’s before any hardware improves even further).

This means that mining is getting more efficient. Better efficiency leads to lower costs. Lower costs leads to higher rewards. Even the integrated halving or other block reward reduction that each cryptocurrency blockchain sees periodically is not impacting the currency’s price (in fact, prices usually increase leading up to and after a halving event) or resulting in a drop in mining activity.

The JPMorgan report is solid on a lot of topics. However, given the sheer magnitude of resources available to the company, it becomes apparent that there is still a great deal of education that is needed for the crypto space to be better understood. CoinGeek’s partners at nChain, operate at the cutting-edge of this field, understanding how massive on-chain scaling of blockchains, mining efficiency, and profitability all work together to create a thriving blockchain ecosystem. The team at nChain is educating others in order to help increase mainstream understanding of cryptocurrencies and the blockchain space in general; perhaps JP Morgan and its analysts, as well as other companies should seek out nChain’s industry expertise.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

Bitcoin Satoshi Vision (BSV) is today the only Bitcoin project that follows the original Satoshi Nakamoto whitepaper, and that follows the original Satoshi protocol and design. BSV is the only public blockchain that maintains the original vision for Bitcoin and will massively scale to become the world’s new money and enterprise blockchain.

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